By Dr Samer Skaik
In construction contracts governed by FIDIC 1999, provisional sums are often included to account for certain parts of the work that are not defined in detail at the time of contract signing. These sums provide flexibility to accommodate future decisions by the Employer or Engineer regarding specific work items or materials. Proper management of provisional sums is crucial to ensure that the contract remains fair and that all parties understand their obligations and entitlements.
Understanding Provisional Sums:
A provisional sum is an estimated amount included in the contract for certain parts of the work that are not fully defined at the time of contract signing. These sums are often included in the Bill of Quantities (BOQ) and serve as placeholders for work that will be specified later, either by the Engineer or the Employer. The Contractor is not responsible for pricing these items at their own risk.
Contractor’s Obligations and Entitlements:
When dealing with provisional sums, the Contractor’s obligations and entitlements are governed by specific clauses in FIDIC 1999, particularly Clauses 13.5 and 5.2.
- Acceptance of Nominated Subcontractors (Clause 5.2):
- The Contractor must accept the nomination of a subcontractor unless there are legitimate grounds for objection, such as previous adverse experiences with the subcontractor. This clause is particularly relevant when the provisional sum relates to a work package intended to be executed by a nominated subcontractor.
- Valuation of Provisional Sums (Clause 13.5):
- Once the specific work or materials covered by a provisional sum are defined, the sum must be adjusted to reflect the actual cost of the work or materials. This involves omitting the provisional sum and replacing it with the actual cost, plus an agreed percentage for overheads and profit, which is typically stated in the BOQ or the Appendix to Tender.
Case Examples:
- Provisional Sum Included in the Contract:
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- If the cladding package, for example, was included in the contract as a provisional sum, the Contractor would be entitled to payment for the actual cost of the subcontract work, plus a percentage for overheads and profit. This percentage should be specified in the BOQ or the Appendix to Tender.
2. No Provisional Sum Listed:
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- If a specific item such as landscape package was not listed as a provisional sum in the contract, the Contractor may be entitled to treat any subsequent nomination instruction as additional work under the contract. In this case, the Contractor would apply the overhead and profit percentage stated in the Appendix to Tender. Additionally, the Contractor might be eligible for an extension of time if the execution of the work impacts critical path activities.
Key Considerations:
- Scope Definition: Clearly defining the scope of work associated with provisional sums is critical. This ensures that all parties understand what is included and what will require additional instructions or variations.
- Timing and Instructions: The timing of instructions related to provisional sums can significantly impact the project schedule. Contractors should assess the impact of these instructions on the critical path and ensure that any potential delays are documented and addressed through appropriate claims for extensions of time.
- Contractual Limits: Provisional sums cannot be increased or added after the contract has been signed unless agreed upon by all parties. The FIDIC contract clearly states that provisional sums must be used “in whole or in part” but not in excess of the specified amount.
Conclusion:
Dealing with provisional sums under FIDIC 1999 requires careful attention to contractual obligations and entitlements. Contractors must ensure they understand the scope of work associated with provisional sums, adhere to the conditions for accepting nominated subcontractors, and accurately adjust provisional sums based on actual costs. By doing so, they can safeguard their interests and ensure that the project progresses smoothly without unnecessary disputes or delays.
For further detailed guidance, contractors are encouraged to refer to the FIDIC Contracts Guide, which provides in-depth commentary on these clauses, or consult with a professional well-versed in FIDIC contracts.